New research: Do market pay supplements help to address recruitment and retention issues in public sector employers?

A new research report, produced by IES on behalf of the Office of Manpower Economics (OME) for the public sector pay review bodies, investigates the use and effectiveness of market pay supplements and Recruitment and Retention Payments (RRPs) for staff including nurses, IT professionals and social workers.

Based on a detailed literature review and six new case studies in the NHS, Armed Forces and local authorities, the research highlights the need for caution in their use, but also the potential benefits in utilising them, if they are designed and operated effectively.

The tightening of the UK labour market, with historically low levels of unemployment increasing the incidence of reported key skill shortages, alongside continuing restrictions on public sector pay pay increases, have encouraged the use of market pay supplements and RRPs for public sector workers, ranging from nurses to various Armed Forces personnel, teachers and prison officers.

In the past, their use has at times attracted controversy, raising questions as to whether they are managed fairly; whether, in reality, they can be removed if market conditions change; and, most crucially, whether they actually have any impact on improving levels of recruitment and retention.

The use of these supplements has increased in the public sector, but in a fairly well-controlled manner, rather than just in ‘knee-jerk’ fashion to respond to staffing crises. Their use is in fact still twice as common in the private sector. While for some categories of staff in, for example, the Armed Forces their use has been encouraged and they are indeed normal practice for social workers in London, for other groups of staff, including nurses, their use has been reducing.

The existing academic research throws significant doubt on the ability of even quite large financial payments on their own to address recruitment and retention problems. The case study examples reinforce this, with even those employers using RRPs utilising them as part of a wider staffing strategy with non-financial as well as financial components – such as training support and career development opportunities.

The case studies also found that tight controls were placed on their introduction, with detailed business and market justifications required. Their use has also become increasingly focused on specific workers categories. They may, for example, just be paid to children’s social workers rather than all types.

Dangers in using pay supplements, identified in the report, include worries around the use of pay supplements without addressing wider issues in HR and staffing strategies, such as excessive workloads. There is also a need to be clear that pay supplements are not person-related and ensure that explicit and transparent criteria are in place surrounding their use. These are just some of the dangers highlighted in the report, and it is this strong targeting of pay supplements that supports their effective use, so long as they are used sparingly, particularly in lump sum form. The practical implications for employers, based on the experiences and advice of the case studies, are presented in more detail in the report, which concludes with five essential criteria for the effective use of such supplements. These are:

• clear criteria around the reasons for their use, including goals of their usage and close monitoring and review;
• targeting on specific groups;
• availability of good quality external market and internal HR data;
• HR, line management and staff involvement in the development and operation of the supplement; and
• cooperation with other local employers.

Read the full report